Question

During the current year, High Corporation had 4.8 million shares of common stock outstanding. $7,725,000 of 16% convertible bonds were issued at face amount at the beginning of the year. High reported income before tax of $5.8 million and net income of $4.8 million for the year. The bonds are convertible into 805,000 shares of common. What is diluted EPS (rounded)?

Answer 1

$1.07 per share

Step-by-step explanation:

As we know

Earning per share = Net Income / Outstanding numbers of shares

Tot calculate the diluted EPS we need to add diluted income in the net income and diluted numbers of shares in outstanding numbers of share.

Formula for Diluted EPS

Diluted EPS = Total Income / Diluted Numbers of share

Tax for the period = Income before tax - Income after tax = $5.8 million - $4.8 million = $1 million

Tax rate = ($1 million / 5.8 million) x 100 = 17.24%

Total Income = Net Income after tax + Diluted income = $4.8 million + ( 7,725,000 x 16% x ( 1 - 17.24%) = $4,800,000 + 1,022,914 = $5,822,914

Diluted Numbers of share = Common stock outstanding + Diluted shares = 4,800,000 + 625,000 = 5,425,000 shares

Placing value in the formula

Diluted EPS = $5,822,914 / 5,425,000

= $1.07 per share